A look at the day ahead in U.S. and global markets from Mike Dolan
Even though Wall Street stocks lag world markets this year, the S&P500 still managed to wring out another record high on Tuesday – with a mix of new tariff threats, housing updates and Federal Reserve minutes to digest later today.
A confusing and turbulent start to the year has seen global investors’ attention switch away from pricey U.S. equity to cheaper European stocks and Chinese tech – with this week’s talks on ending the Ukraine war and Germany’s weekend election catalyzing interest in the former.
The rapid turnaround in portfolio investment allocations and mutual fund flows this year is eye catching, but so too is the shift in economic news relative to some extreme expectations.
Economic surprise indexes compiled by Citi show the euro zone gauge at its most positive in eight months while the U.S. equivalent has slipped back into negative territory – with the gap between the two at its most favorable to Europe since July.
Still, these are all relative measures and – for now at least – the still upbeat global activity picture is lifting all boats. And that’s allowed U.S. indexes to keep nudging higher even as global investment portfolios rebalance.
U.S. futures held the latest marginal stock into Wednesday
As to the hot button geopolitical issues of the moment, they continue to rankle overnight – as US President Donald Trump re-iterated threats to impose 25% tariffs on autos, drugs and chips while tensions built around the controversial Ukraine talks.
Washington’s decision to bypass Ukraine and talk directly to Russia about ending the war has raised major concerns about attempts to unseat Kyiv’s government as part of the deal.
With barely concealed anger in Europe at the absence of Ukraine President Volodymyr Zelenskiy from the talks in Saudi Arabia, European Union leaders are now bracing for a ratcheting up of future security risks, pushing to up defense spending and ways to fund it.
Markets are scrambling to price the shift, with European defense stocks surging this week while talk of higher public spending in Germany after the weekend election has encouraged bets on a wider reboot of the euro bloc. Talk of a rapid defense push has also spurred talk of another round of joint European borrowing, akin to that seen during the post-pandemic rebuild.
That’s both seen benchmark German bund yields rise further as well as squeezing the risk spread between Germany and other euro sovereigns. Italy’s 10-year spread has hit its narrowest in 3-1/2 years while the recently elevated French spread is back at its lowest since July.
